A lack of transparency around pricing and the availability of viable market data alternatives in key parts of the market is leading to annual costs increases and hard-to-navigate provider agreements, according to research from Substantive Research, a research discovery and research spend analytics provider for the buy side.
It found that there is little or no correlation to the size of the firm consuming the market data. Even accounting for specific “apples- to- apples” use cases, the range of inconsistencies applied to pricing post-negotiation is between 10% and 50%.
In addition, buy side budgets vary from 0.55bps to 1.27bps of assets under management – this is one of the largest costs of doing business for an asset manager and it is increasing materially year on year,
It said that average potential savings per provider are $360,000 but as many institutions use a long list of providers, this figure scales up rapidly.
Overall, global spend on financial market data reached a record $35.6 billion in 2021, according to the latest Financial Market Data & Segment Sizing 2022 research from Burton-Taylor.
The Substantive research also noted glaring differences can especially be seen in the index space. The research revealed that the pricing buy side institutions receive for supplying a single index from the same provider differs by an average dispersion of 21%.
The overall range from lowest price to highest price can be as high as 219% with some institutions paying more than twice as much as peers.
For reporting licenses, this figure can be up to 37% with the range from lowest to highest as high as 472%. This translates in some paying more than five times than their peers.
Average spend on index products per provider can be broken down into 44% on licenses and 56% for the underlying benchmarks. Licenses are where the greatest price variability occurs for similar use cases.
The firm said that the findings are based on an aggregated, market-wide perspective, which provides headline data on the index market, a core area of focus and cost for the buy-side.
To address these challenges, Substantive Research has launched a market data spend analytics service, which allows long-only asset managers, wealth managers and hedge funds to understand and compare their market data payments and budgeting with the wider market and against their peers.
The service includes price benchmarks that isolate pricing drivers by market segment, product and provider matched to specific client use cases.as well as budget benchmarking – insight into the resourcing of data budgets including key internal best practice, growth in overall budget as well as in each specific segment.
It will also cover price movement in terms of which providers are changing business and pricing models and alternatives and adoption rates per provider
“The power dynamics of market data are fundamentally different from the research market – the leverage in market data often sits entirely with the provider,” says Mike Carrodus, CEO of Substantive Research.
He adds, “We can’t change that, but it’s clear that this market is maturing, and providers are changing their behaviour gradually. Incumbent providers have ensured dominance in certain key areas, but they also acknowledge that transparency can only be a good thing for the industry.”